Question

Compute and Interpret Liquidity, Solvency and Coverage Ratios
Selected balance sheet and income statement information from Verizon Communications Inc. follows.

($ millions)	2016	2015
Current assets	$ 26,395	$ 22,355
Current liabilities	30,340	35,052
Total debt	108,078	109,729
Total liabilities	220,148	226,333
Equity	24,032	17,842
Earnings before interest and taxes	27,059	33,060
Interest expense	4,376	4,920
Net cash flow from operating activities	$ 22,715	$ 38,930

Round all your answers to two decimal places.

(a) Compute the current ratio for each year and discuss any trend in liquidity. (Round your answers to two decimal places.)
2016 current ratio = ?

2015 current ratio = ?

What additional information about the numbers used to compute this ratio might be useful in helping you assess liquidity? (Select all that apply)
A: The maturity schedule of current liabilities
B : The average stock price for the industry
C : The average current ratio for the industry
D : The amount of current assets that is concentrated in relatively illiquid inventories

(b) Compute times interest earned, total liabilities-to-equity, and net cash from operating activities to total debt ratios for each year. (Round your answers to two decimal places.)
2016 times interest earned = ?
2015 times interest earned = ?

2016 total liabilities-to-equity = ?
2015 total liabilities-to-equity = ?

2016 net operating cash flow to total debt = ?
2015 net operating cash flow to total debt = ?

Answer 1

CUrrent raio = current assets / current laibilities

2016 = 26396 / 30340 = 0.87

2015 = 22355 / 35052 = 0.64

Higher the current ratio better the liquidity

Trend shows that there is an increase in the current ratio from 2015 to 2016 which indicates a better liquidity.

D) the amount of current assets that is concentrated in illiquid inventories would help in better assessment of liquidity

Times interest earned = EBIT / interest expense

2016 = 27059 / 4376 = 6.18

2015 = 33060 / 4920 = 6.72

Total laibilities to equity = Total liabilities / equity

2016 = 220148 / 24032 = 9.16

2015 = 226333 / 17482 = 12.69

Net operating cash flow to total debt = operating cash flows / debt

2016 = 22715 / 108078 = 0.21

2015 = 38930 / 109729 = 0.35